June 7, 2011 17:37
HMV announces "eye-watering" refinancing deal
Retailer gets cash-injection, but at a high price
HMV has agreed a new £220 million refinancing deal which has been described by experts as "eye-watering".
The package will ease the stress on the troubled music and DVD retailer, but it now faces high interest rates and fees as part of its repayment plan.
The company has estimated debts of £170 million, and has issued several profit warnings this year, with the planned closure of 60 stores according to BBC News.
HMV's main lenders are the taxpayer-funded Royal Bank Of Scotland and the Lloyds Banking Group. The new package is made up of separate loans of £70 million and £90 million, plus a £60 million credit facility which can be called upon is needed.
But HMV faces an interest rate of 4% above the benchmark market rate, plus an 'exit fee' on the £90 million loan when it is repaid. This would rise to 14% by January 2013 if it has not been repaid by then. The deal also includes issuing the lenders with warrants worth 5% of the company, convertible into shares next year.
News of the deal proved a shot in the arm, with yesterday's (Monday 6) rumours pushing HMV's share price up by 4p to 12.25p. It rose further today, but later fell again as the stringent conditions of the package became clear.
Robert Clark, senior partner at Retail Knowledge Bank, said the interest rates HMV potentially faced on this loan were "eye-watering". He said: "It hasn't really taken on the Amazons of this world and hasn't gone into downloading in the way that it should have done."
However, HMV chief executive Simon Fox said today's news "represents another important milestone in securing the financial stability of the group."
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